Monthly Archives: November 2019

Writing Off Major Purchases for 2019

Managing a business is a lot like managing your weight — if you take in more than you put out, then you’ll have major gains at the end of the year. And with both business and personal weight, those gains can have consequences.

As a business owner, the goal is to make as much profit as possible, but remember that those profits come with a nasty little caveat: taxes. The higher the profit, the higher the tax. Thankfully, this year Uncle Sam will show some mercy come tax time in the form of Section 179 deductions. As a disclaimer, we are not tax advisors and any planning or decisions should be reviewed or undertaken by your company’s CFO or accounting professionals. Look at this as an overview to motivate you to take advantage of this new law.

What Are Section 179 Deductions?

When we talk about 179 deductions, these are the classic “write-offs,” but with an extra benefit. With many write-offs, you can only take partial deductions over a few years. For instance, you buy a car for business but you can only write off a portion of the car’s value for the next five years. By definition, Section 179 in the tax code allows a business to deduct the value of a property that was purchased for the business against any profits (or losses) that may have been made throughout the year it was purchased and implemented, thus lowering the total tax burden. This “property” falls into the following categories:

Business Personal Property: This would include anything purchased for business use that isn’t bolted to a floor or wall. This includes furniture, computers, software — even paper and pens!

Machinery and Equipment: This includes items purchased for businesses that are too large to move or might physically be bolted down. An example of this would be a printing press or conveyer belt.

Business Vehicles: These are cars or trucks that have a gross weight of more than 6,000 lbs and are used exclusively for business purposes.

Listed Property: This is property used for business purposes. What’s interesting here is that it doesn’t have to be 100% business-oriented, though you can only write off the portion that is used for business in proportion to time used. For instance: if you have a home office and you work for eight hours a day for five out of seven days in a week, that means that your home would be used for business purposes about 23.7% percent of the time and therefore you could possibly write off 23.7% of your mortgage.

Capital Improvements: If you make improvements to a building used for business, you can write off that expense. This also includes items like air conditioning or alarm systems.

What Does This Mean For Small Businesses?

It would not be an over-exaggeration to state that many small businesses wouldn’t exist without these deductions. While Section 179 deductions may just mean larger profits for large corporations, they may end up being the entire profit margin for a small business. One reason for this is that capital expenditures make up a larger proportion of the total costs of smaller businesses compared to larger companies. Having the ability to take these write-offs in a single year can make all the difference in the world.

In addition, by having the ability to purchase equipment and property on such favorable terms, a small business may be able to purchase more than they initially planned on, thus helping them grow at a faster rate. On the other hand, if a company doesn’t need more equipment or other purchases at that moment, they could invest the tax savings in other ways, such as hiring more employees, which can also contribute to business growth. As of 2018, limits have been raised from $1 million per qualified capital purchases up to $2.5 million. This is certainly more than enough for most small businesses!

Include Deductions In Your Budget

Some view tax deductions as a bonus, but that shouldn’t be the case. When creating a budget, deductions should be included as a part of your income or at least as a justification in increasing expenditures. Small companies, especially when new or in a growth phase, need all the liquidity they can get.

As we are nearing the end of 2019, are you finding your company has extra funds sitting around? By taking advantage of Section 179 deductions, perhaps you’re now realizing that you will have more to write off this year than initially thought and you’ll have a lower tax burden than you’d planned on. Therefore, you may want to consider investing in yourself for next year. Budgets for newer businesses are notoriously difficult to plan since income forecasts won’t be as predictable as they are for established businesses. While the economy is strong at the moment, we all know that this can change at the drop of a hat. If things are going well this year, it would be smart to capitalize on that by getting ahead of some of next year’s purchases.

That extra ten pounds you’ve gained this year may not be doing you any favors, but the gains your company made will not only put more money in your pocket, it can also help you invest in the future. If you have any questions, consult with your tax professional to see which Section 179 deductions can be a boon to your bottom line.

Utilizing a vCIO

Using technology in any business is an absolute necessity in the modern world. For this reason, most larger businesses employ CIOs to oversee the technical aspects of business, ranging from purchasing to implementation and maintenance.

While this may work for large corporations, many smaller businesses find themselves without a single, dedicated IT professional on staff, let alone a department with a CIO. However, that’s not to say that companies of this size wouldn’t benefit from this type of support. Are there other options available?

vCIO

A term that has become common in the small business world is vCIO or virtual Chief Information Officer. No, this isn’t some sort of hologram that shows up to company meetings. It’s possible for an individual to fill this role remotely, but it’s best to hire a Managed Services company to perform the tasks the CIO would.

There are a series of reasons why a Managed Services provider would be beneficial. First, this type of service usually costs less than the salary of a dedicated person with the needed qualifications. While individual humans tend to make mistakes from time to time, a team of people doing the work has more checks and balances in place to make sure that the job is being done well. Beyond these generalities, what exactly are the benefits of a vCIO?

Seeing the Big Picture

Two of the major jobs of a CIO is to create the entire technology system as well as plan for the future. Are you planning on expanding the number of computer terminals? Perhaps you will eventually move your server storage to the cloud? What sort of backup system is in place currently and how are you budgeting for upgrades and maintenance? A vCIO would make these types of plans for you. Naturally, you make the final call, but they put forth an expert recommendation with a plan for follow-through.

Taking Care of the Little Things

The more technology is running in any given operation, the greater the likelihood of something breaking. Most small businesses don’t have the time or expertise to handle the day to day maintenance of their systems without diverting attention from other areas. Even if an employee has the time and does well with his/her home network, business equipment should be in a category far above consumer-grade. For instance, maintaining a server with a Windows Server OS utilizes a completely different skillset than using Windows on a desktop PC.

Along with the previously listed points, efficiency is a major benefit of using a vCIO. Let’s say that someone in your company is technologically inclined. If an issue arises, that would take them away from their normal duties. In addition, the amount of time and effort you need to fix the problem may be much more than someone who deals with similar issues regularly. Think of having to search for passwords and how long it may take to look up error codes online. In the end, you’ll probably still need to bring in outside help, taking even more time to fix what would be a routine task to a dedicated managed services professional.

Never on Break

The only thing that is more of a burden than hiring a dedicated IT professional is hiring an entire team. Many businesses have some sort of operation running 24/7. Even if you have someone on staff, how many hours can they work in a day or week? What happens if they called in sick or take a vacation? vCIO services will have people on call around the clock, day and night. If it breaks at four in the morning on a Saturday, a vCIO will address it well before someone shows up Monday morning, unable to work.

Just in Case

Once the systems are up and running, support issues tend to drop. Does that mean that all your needs are met? Well, even the most skilled backyard mechanic needs to bring their car into the shop occasionally. There will be times when a system needs a major overhaul, such as hardware or software upgrades. This requires a large amount of time and expertise. If your company finds itself in an emergency, like a virus spreading through your network, you need intense intervention. A vCIO can help you weather such a storm until you’re able to get back on your feet. For many companies, these are the sort of situations that convince them that they need a vCIO moving forward.

As we’ve discussed, vCIOs may or not be the best solution for your company. However, if you currently find yourself without a dedicated, technical professional on staff, you may want to research your options. A relatively small investment in this sort of service will, more than likely, pay off big in the future.

Plan Your Technology Refresh

You spend your whole life up to date with every new singer and song. Then, one day, you realize that you don’t recognize anything on the radio, and they don’t make music like they used to. You start to avoid the new stuff only listening to things from your college days.

While in your personal life this attitude might work for you, in the business world, this could be devastating, especially when it comes to your network. We live in an age where virtually all companies utilize technology. If you consistently hold on to older technology, you could find yourself going the way of the dinosaurs.

The March of Progress Waits for No One

There are certain technologies you can use for a decade or more while others become outdated within weeks. Of course, how and when a technology becomes obsolete varies depending on a variety of factors. For the sake of this discussion, we will use two different terms: Functional obsolescence and absolute obsolescence.

Absolute Obsolescence occurs when it’s physically impossible to use the technology. For instance, a computer without a modem or ethernet port would make connecting to the internet impossible. Utilizing a line of business application that runs solely off floppy disks also falls in this category.

Functional Obsolescence is a bit different. This is when something technically works but is not advisable. An example of this would be using Windows 7 after January 20, 2020. Although possible to use, you’re asking for your system to be hacked and files compromised due to security holes. When it comes to software, utilizing older software often limits its functionality. Think of trying to create a .docx file (current MS Word format) while using Word 97 (only capable of .doc). It’s like trying to get blood out of a stone.

Keep yourself informed about end dates. Be proactive with update schedules to make the prospect of upgrading less of a burden. Be aware of when certain parts of software will no longer be supported so that you can plan for a transition. This will make normal operations significantly smoother, as well as make it easier to recover should you ever experience a data loss event.

Perception is Everything

Besides the explicit risks of using obsolete technology, we need to consider perception. Using updated technology displays success and professionalism. Perception is worth its weight in gold when it works in our favor. In certain industries, there is massive competition between individual providers and customers can have very little reason to choose one over another, so this perception is critical.

There’s a reason why companies who invest in new technology often spend good money to advertise it to the public. Unless a potential customer is familiar with the expertise and reputation of your company, they rely on signals like your technology. Using noticeably out of date technology can leave a negative impression and make them think twice before doing business with you.

The Bottom Line

A generation ago, using computers was a luxury. However, that is no longer the case. From web designers to lumberjacks, just about every industry requires technology to some extent. Instead of trying to fight it, proper planning and implementation can make this fact of life work in your favor.

Consider it time to plan a technology refresh. Since everyone is in the same boat, there are plenty of options to accommodate even the most tech-illiterate user. Subscription services have become an immensely popular option for software, making sure that users always have the most current versions. For those that have an idea of how often they need to replace their hardware, Hardware as a Service (HaaS) programs may be your best bet. You pay monthly or yearly for not only maintenance but also for the eventual replacement at a set interval, taking the guesswork out of upgrades.

But when it comes down to it, much like the rest of life and business, balance is key. You shouldn’t make new technology your center of focus, but try not to be stubborn about upgrading, either. Remember, while you may be comfortable rocking out to the oldies, there’s still plenty of value in what’s new and fresh.